GEOS June 2020 Review and Outlook
The second quarter of 2020 brought a global equity market that waxed and waned between one of vibrance, catalyzed by historically unprecedented support from stimulus packages, to volatility based on the timing for the recovery of the COVID-generated economic crisis. While we believe an eventual economic recovery will unfold in the coming months, we believe the COVID crisis is the great accelerator for clean technologies whose favorable trends were already in place as we entered this unprecedented time.
Social Impact Reporting Update
The COVID crisis has provided an alarming and timely example of the extent of the need globally to rapidly solve environmental, social and human health problems, which are outlined and disseminated in the United Nations (UN) Sustainable Development Goals (SDGs). The SDGs are a set of 17 goals adopted by the UN in 2015 to solve social, economic and environmental challenges, aiming for completion by 2030. While GEOS solves global environmental challenges, many issues such as human health have direct connections to the global state of the environment. We started tracking our GEOS holdings to the SDGs last year, as the framework is a common language with an emerging methodology that will allow SDG commitments to scale, as companies that provide SDG solutions hone their messages to the marketplace. As we have often expressed, GEOS is focused on investing in companies providing solutions to environmental challenges, which we believe to exhibit much greater social impact than merely investing in companies that have appropriate ESG practices. Our social impact reporting initiative demonstrates our strong impact alignment amidst listed equities, using examples and incorporating the SDG framework. Most importantly, we are engaging with our portfolio companies, educating management on the SDGs, sub-SDGs, and key performance indicators with a goal to scale and close the gap between SDG pledges and actual funding and investment in the solutions. SDG commitments are gaining huge momentum, most recently exhibited in the EU Green Deal, which will catalyze clean tech unlike any other plan before. This plan could well have the greatest impact on the European economy since the Marshall Plan.
As the black outlines illustrate below, we believe GEOS solves eight of the SDGs. To give one example: the GEOS power technology theme has exposure to technologies such as advanced meter infrastructure and electric utility systems management and two portfolio investments, Itron and Landis+Gyr, solve SDGs 9 (Industry, Innovation and Infrastructure), 11 (Sustainable Cities and Communities) and 12 (Responsible Consumption and Production). We believe our aging electrical grid presents one of the greatest clean tech opportunities over the next ten years. Our grid is over 50 years old, built on 100 year-old transformer technology. As we electrify commerce and add renewables and disruptive technologies to our grid it will need to transform and adapt as generation assets are added by utility customers, and given increased electrification of transport. Two current GEOS holdings provide technology support for both utilities and customers, Itron and Landis+Gyr. We engaged with Landis+Gyr last year to educate management on the SDGs and impact reporting, and due to these discussions, Landis published that their smart meter install base enabled 8 million metric tons (mmt) of carbon savings through improved energy efficiency during the 2019 fiscal year (source: Landis+Gyr 2019 Performance Report).
The Current Outlook:
The global pandemic is placing unprecedented stresses on our global social, health and economic systems, and is a firm warning and indicator of the fragility and interplay between health and environment. Research has shown the link between climate change and deforestation and decreased biodiversity. There is also a direct link between declining biodiversity and deforestation and increased risks for pandemics (National Academy of Sciences, 2017; WHO). Our planet has experienced massive biodiversity loss over the past 50 years, the result of climate change and human behavior. Our social impact measurement work exemplifies the connected nature of the environment, with human health and social issues, and is reinforced by each of the SDG goals. There are several GEOS holdings that abate deforestation and enhance biodiversity. For example, Raven Industries has a precision agriculture technology that controls fertilizer and pesticide applications during bee pollination or for sensitive crops and nature. We also believe COVID is the great accelerator for clean technology, as companies will continue to invest in solutions that enable resource efficiency. The pandemic is accelerating trends that were already in place prior to the pandemic, yet the crisis has demonstrated the need for increased stability and resiliency throughout our economy. The increased need for clean and green solutions is reflected in economic packages such as the EU Green Deal, as well as increased demand for business and residential resiliency and efficiency, from stationary power storage, to solar power and smart city infrastructure projects, catalyzing the clean transition.
This commentary is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. The opinions and analyses expressed in this commentary are based on Essex Investment Management LLC’s (“Essex”) research and professional experience and are expressed as of the date of its release. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is intended to speak to any future periods. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.
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